Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study resolves both puzzles. Modeling endogeneity of firm-underwriter choice using a...

We study a model in which an issuer can manipulate information obtained by a credit rating agency (CRA). Better CRA screening reduces the likelihood of a high rating, but increases the value of a rated security. We find that improving the prior quality of assets can have no effect on the quality...

A rater is paid by a seller, observes a signal about the seller's product, and issues a public cheap-talk rating for potential buyers. I characterize the partition of the rater's information into ratings issued following public payments from the seller to the rater, and ratings issued when the...

I analyze credit rating agencies and competition on a market with more than two agencies. Both investors and agencies react to each other's behavior. My model predicts cyclic dynamics in the base case: not only does the presence of trusting investors facilitate ratings inflation. In turn,...

Both equity and non-equity crowdfunding has proven to be a productive method of capital formation for start-ups. The equity crowdfunding provisions of The Jumpstart Our Business Startups Act (the “JOBS” Act) offer perhaps the most promising development to facilitate capital formation by...

This paper examines obfuscation through complexity of financial innovations in the presence of investor learning. By exploiting the staggered adoption of a price disclosure policy for issuers of retail structured products, I provide evidence that issuers subject to price disclosure significantly...

Building on the idea that precision of credit ratings matters for the efficiency of investors' portfolio decisions, the paper analyzes the equilibrium precision of ratings. Our analysis explains why ratings are noisy, exhibit rating inflation and vary across asset classes and over the economic...

Crowdfunding, a novel form of financing, has seen massive growth over the last few years. Under crowdfunding, a firm asks for a large number of small loans from many households. But if some predefined threshold for the aggregate loan volume is missed, the firm cannot draw the loans. We construct...

Korean Abstract: 서브프라임 모기지 및 구조화 상품 등에 대한 부정확한 신용등급은 최근 금융위기 확산의 주요 요인으로 지적되고 있다.본 논문은 신용평가노력을 관찰할 수 없는 숨겨진 행동모형(hidden action model)을 통해...

Booming markets are a time of high returns and high risk, including the risk of misrepresenting the quality of an investment. The Chinese bond market has recently been going through a boom period, and we document evidence of ratings shopping in the enterprise bond market. Our evidence shows that...